The following was originally published by Politico
With more than 20 million people unemployed or underemployed, deflation looming, trade deficits rising and the economy staggering, American elites are hyperventilating about balancing the books.
While most economists talk about the need for short-term stimulus, this looks increasingly difficult. Republicans filibuster unemployment insurance, demanding spending cuts to offset the costs. Billionaire Peter Peterson’s longtime campaign to rouse deficit hysteria seems to be succeeding. President Barack Obama has set up a deficit commission with a charge to balance the budget by 2015, while calls for a three-year freeze on domestic spending outside entitlements embolden Blue Dog Democrats’ opposition to immediate jobs measures.
Erskine Bowles, the New Democrat co-chairman of Obama’s commission, darkly warned governors, “The debt is like a cancer.” That wasn’t enough for his co-chairman, former Republican Sen. Alan Simpson, who said the federal government was bankrupt and could give states no more help. “The pig,” Simpson declared, “is dead. There’s no more bacon.”
In the short term, with threats of double-dip recession looming, such hysteria is folly. Congress and the president should be pressing a renewed effort to put people to work — with direct employment programs, particularly for the young; aid to states and localities to forestall brutal layoffs of teachers and police officers; and expanded investment in rebuilding America’s infrastructure. This on top of what should be routine — like extended unemployment insurance, support for Medicaid, food stamps and more. All this could add far less to the long-term debt than a double-dip recession.
But even more striking is how inadequate the elites’ consensus is for the long term. It is as if America’s elites had turned into bookkeepers rather than leaders. They are abandoning the centerpiece of what has made America exceptional — an optimism and confidence that we can create a better future.
Consider the last time the country was deeply in debt, as it emerged from the Great Depression and World War II. Our debt as a proportion of gross domestic product then was more than 120 percent — well over twice the burden it is now.
The country had suffered through a decade-long depression and a global war. Troops were coming home, but the economy was still mobilized for war. Europe and Japan were devastated. Fear of a new depression was widespread.
But having won the war, America had the confidence to build a new economy. Our leaders saw themselves as “present at the creation” of a postwar order. Congress passed the Employment Act of 1946, committing the federal government to use its powers to “foster continuous, useful employment for those able, willing and seeking to work.”
These weren’t just words. Congress passed the GI Bill, sending former soldiers to college or advanced training and subsidizing home loans that helped build the suburbs. Government financed the transformation of military factories into civilian production, investing in industries — from aerospace to automobiles — that would dominate the world. The Truman administration created the Bretton Woods system to structure the global economy, controlling capital flows and regulating exchange rates while encouraging trade.
From 1948 to 1951, Washington donated $13.2 billion to Europe’s recovery through the Marshall Plan — transferring the equivalent of 2.5 percent of our GDP at its height. A Republican president, Dwight D. Eisenhower, the hero of the war, put a lid on military spending while building the interstate highway system.
With occasional exceptions, the country continued to run annual deficits, and the accumulated debt continued to rise. But the country grew at a faster rate, and the broad middle class — the triumph of U.S. democracy and the largest in the world — was forged. Debt as a percentage of GDP declined steadily, to less than 32 percent when Ronald Reagan took office.
U.S. politics then was as poisonous as now. The Republican Senate leader, Robert Taft, opposed virtually all of President Harry S. Truman’s efforts. Conservatives railed about deficit spending. The right conjured up preposterous conspiracy theories, launching witch hunts of communists and trampling basic liberties.
But a confident America was not distracted by the timid or the crazed. Our leaders built a new foundation for the postwar economy, vital to a prosperous future.
Eisenhower reaffirmed the New Deal reforms. Social Security was preserved; finance remained tightly regulated; top-end tax rates stayed at 90 percent; labor’s right to organize was weakened but not gutted. A broad middle class replaced the extreme inequality that contributed to the Great Depression. We all grew together.
The contrast with today’s elite consensus could not be starker. Then-U.S. leaders, burdened by far greater debt, facing an uncharted transition from wartime mobilization to peacetime economy, focused on what would be required to build a full employment and a growing economy. They didn’t get every answer right — but they got the question right.
Today, our elites aren’t asking what is required to rebuild a vibrant economy of shared prosperity. They are focused instead on how we balance our books. They seem intent on rousing fears about the deficits and debt to convince Americans it is time to cut back Social Security and Medicare, the core of our social contract.
They have it wrong. This country must build a new economic foundation — revive cutting-edge manufacturing, modernize infrastructure, revitalize education and training, invest in research and development, find ways to shackle speculation and drive private investment into longer-term horizons and empower workers to gain a fair share of the productivity they help generate.
We need leaders, not accountants; vision, not bookkeeping. Today, our greatest deficit is in vision — not in budgets.